College costs of $50,000 a year? That prospect seemed extreme when I wrote about soaring higher education bills in a 1989 column. Then, tuition and fees at private four-year colleges averaged $20,000 in 2006 dollars. But 17 years later the tab has jumped 50% in inflation-adjusted terms, to $30,000 (see chart).

One reason for exploding prices: The schools can get away with it. Demand exceeds supply at high-end private schools. Americans have always associated education with career success, and college grads earn 45% more than high school grads.

Many believe that college educations, not the innate talents of students, give rise to this earnings disparity. This presumption is unproven, and causality may run the other way. Also, the prestige of American institutions attracts hordes of foreign students. The irrefutable proof of excess demand is that universities pay legions of employees to turn down perfectly good business. Many first-tier universities admit only one of ten applicants.

The better schools assess only the most prosperous customers the full amount. Then they give part of that money to poorer families to yield their desired student body mixes. This is price discrimination, pure and simple. In this environment college presidents worry more about catching up and keeping up than about costs. Second-tier schools strive to improve faculty salaries and campus infrastructure (labs, dorms, libraries) to compete with the leaders. And the first rank is determined to stay ahead.

Will additional government aid or alumni giving curb the tuition spiral? No. If the Democrats get their way and Congress provides more federal support, that would only increase higher education demand and allow colleges to make offsetting tuition hikes. Fatter contributions to your alma mater's endowment will encourage more spending. Most institutions keep tuition and fees at a constant percentage of total income, including income from endowment. So more endowment means higher tuition.

Still, there are reasons to hope for an end to this plague of ever higher bills. One is increased competition by online education. For-profit institutions and lesser-known public universities are offering much cheaper virtual classrooms. And recall that not long ago the premium selling prices of prestigious retailers were immune to inroads from e-tailing. Not now.

Demand for higher ed may also moderate as parents revolt. Some have been forced to limit their family sizes in anticipation of crushing tuitions. In yesteryear many families skipped vacations to meet college costs; nowadays they substitute their houses' appreciation via home equity loans. But with the collapsing housing bubble, this well is running dry. Parents also realize that more money is buying a deteriorating product. A 2005 federally sponsored study finds declining literacy among the college educated. Many schools have abandoned core curriculums, along with any effort to influence their students' morals and ideals.

Many parents are shifting college costs to students, who leave undergraduate days with $20,000 of debt on average. New student loans through banks tripled to $17 billion from 2001--02 to 2005--06. Less-swanky private and public schools are fighting price discrimination with price discrimination by using merit aid to buy students from the first tier. Ivy league colleges discount only for need, but in 2003--04, 62% of public and 50% of private school grants were based on merit, up from 45% and 33% respectively ten years earlier. And these schools often provide just as good an education. Only 11% of large company chief executives had Ivy league diplomas in 2004, down from 16% in 1998.

Families, wondering whether the big-ticket schools are worth the money, should reflect on these nongraduates: Andrew Carnegie, Henry Ford and Bill Gates. Real wages of college grads fell 3.1% between 2000 and 2005. Supply-demand imbalances get corrected eventually. College education will be no exception.